APPD Market Report Article

Seoul

November 29, 2022

Veronica Shim, Head of Research, Korea

3.1%

KRW 30,359

Growth
Slowing

Leasing deals occur in all districts, driven by demand

  • Net absorption of the overall Seoul Capital Area (SCA) market in the quarter was around 144,900 pyung, recording positive figures for the 17th consecutive quarter. While 3PL and e-commerce players dominated leasing activity, furniture and interior design companies also leased space. During the quarter, several 3PL companies expanded their space within centres.
  • In the Central, North, and South submarkets, 3PL companies expanded their market presence. Several 3PL and e-commerce companies also newly entered the West and South-East submarkets. Both dry and cold centres continued to be in demand.

Ten new centres were introduced in the quarter

  • During the quarter, ten new centres were completed, adding about 164,700 pyung (GFA) of new stock in the SCA. Compared to the previous quarter, total new area has decreased as new completions were relatively smaller on average. There were eight new centres in the South-East, and two in the West.
  • The vacancy rate in the SCA rose 44 bps from the previous quarter to 4.0%. The vacancy rates in the Central, North and South have decreased. In contrast, the South-East and West submarkets saw vacancy upticks, attributable to new supply that has not been leased fully.

Rents rise q-o-q in all submarkets in 3Q22

  • Overall SCA effective rent was about KRW 30,359 per pyung per month, up 1.6% from the previous quarter. Rents in all submarkets have risen, and the North witnessed the largest uptick at 3.1% q-o-q. Notably, one centre in the North lifted face rents by more than 10% q-o-q due to its favourable location as well as upbeat leasing demand.
  • The logistics investment volume in Korea recorded around KRW 1.4 trillion, up 1.9% q-o-q. The most prominent deal was Yangji SLC Logistics Center, purchased by Koramco Asset Trust from Mastern Investment Management for KRW 286 billion via a blind fund that was backed by POBA, KTCU and NACF. The notable deals of the quarter all took place in SCA.

Outlook: Vacancy rises in spite of continued construction delays

  • New completions in 2022 will add around 870,700 pyung (GFA) to stock, 39% lower than 1Q22 supply forecast figures. Challenges in project financing (PF) as well as surging construction costs are likely to persist for the next 12 months. Consequently, investor appetite may be subdued for the present, and assets with inferior characteristics are likely to suffer more.
  • Despite the delay in delivering new centres, there are multiple large-scale projects ongoing, which could add around 1.3 million pyung of new supply in 2023. Vacancy is likely to surge considering the new supply pipeline, and centres with a large proportion of cold space are expected to demonstrate poorer leasing performance.

Note: Seoul Industrial refers to Seoul Capital Area's prime logistics market.

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